Profitability is the new SVOD priority

Kirstin White | Mon Jun 12 2023 | Industry insights

The OTT streaming business is at a point of priority adjustment. Economic factors are pivoting direct-to-consumer streaming services’ focus from penetration and scale to growing profitability. 

Different broadcasters are approaching this profitability equation in their own ways. Some streaming services, like Disney, are cutting content budgets and focusing on third-party production and distribution to reduce costs. Meanwhile, other streaming services are experimenting with increasing prices.

Omdia's recent report on the increasing focus on profitability explored the relationship between pricing changes and Average Revenue Per User (APRU). The graph below shows how significant price increases have led to higher ARPU in various regions.



Omdia Graph showing ARPU increases between 2021 and 2022 for 8 countries

Image: Incidence of growing revenue by raising pricing (Source)

While boosting profits does require structural change decisions like these, ensuring day-to-day operations are optimized to support profitability is equally essential for sustainable bottom-line growth.

Learn more about increasing subscription prices without losing subscribers using the guide below:

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In this blog, we'll explore what Omdia Research suggests about the current scenario and highlight ways to boost profits from your existing DTC streaming operations.


A closer look at the current SVOD scenario

  • Global subscriptions continue growing - The good news is that Omdia forecasts that SVOD players in 2023 will add a net new 143 million subscriptions globally.

  • Fewer households are purchasing - However, even though the SVOD landscape boasts of growing online video subscription numbers, it's essential to note that this growth rate is slowing down. A closer look at the data reveals that the current growth is driven more by existing households buying additional subscriptions than new ones signing up. This trend can be a matter of concern.

  • Subscription fatigue is widespread today. Online video households in mature markets may be reaching their limit regarding the number of services they are willing to subscribe to. In other words, this may imply a shrinking addressable market for paid video.
    Read More: Subscription fatigue: What is it and how can you beat it in 2023

  • Churn is on the up. Higher-than-expected churn levels are disturbing DTC services. Omdia's primary research surveys highlight an increasing trend toward churn in 2022 across several significant territories. It’s expected that this phenomenon will continue to challenge services in the coming years.

  • Profit is shrinking. The churn-linked industry trend can be attributed to rising inflation, shrinking discretionary spending budgets, multiple streaming choices, competition for consumers, and a return to the pre-covid lifestyle. Irrespective of the cause, all lead to high marketing costs for svod businesses to re-attract subscribers into their fold to book the same revenue level. In other words, this means that profit is shrinking.

  • Competition isn’t going anywhere. Furthermore, newer entrants, including the studios' direct-to-consumer (D2C) services, are now compelled to replicate the low-cost, flexible, easy-to-cancel model pioneered by streaming giant - Netflix. While Netflix experiences less churn due to its status as a household core service, other services bear the competitive brunt of relatively higher churn levels than traditional pay-TV businesses. 

The collection market trends listed above make it easy to see why profitability is the new priority. So what can broadcasters do to hit their sweet spot? 

Playing around with pricing and cutting high costs is an evergreen structural way to grow profits. However, at the same time, an essential and sustainable way to boost profits is to keep the good thing going and optimize what's already working. Let's look at how to make that possible.


How to grow SVOD profits sustainably

In simple terms, Profits = Revenue - Cost. 

So, raising steaming profitability is possible in two main ways - increasing revenue and reducing costs. Let's look at some operational improvements to help with that:

1. Ditch a one-size fits all marketing approach

As the market is now highly competitive, it's essential to recognize that umbrella marketing methods are a thing of the past. The present day and age demands personalized marketing, and your efforts must reflect that. A simple way to do it is to segment your target audience into smaller subgroups and run specific campaigns, such as coupon campaigns for the different segments. This boosts conversions, increases loyalty, reduces churn, and in turn, grows revenue. If you rely on tools with the right capabilities for this, setting up campaigns is super simple, quick, and inexpensive.

Learn more about leveraging coupons to grow profitability:

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2. Reduce churn with churn prediction technology

No matter what you do, if you lose subscribers you've gained after investing time and resources, you’ll have a leaky profitability bucket. Therefore, you must direct efforts to improve your CLV and limit churn. A robust way to approach that is by relying on data-driven churn prevention capabilities. This is possible with churn prediction software that tracks your customer’s behavior for signs of potential churn. This gives you a heads up and allows you to re-engage the subscriber before they are lost. Plus you can spend your marketing efforts more efficiently by focusing on the highest risk customers.
Read More: How to reduce OTT churn rate?

3. Deliver exceptional customer support

Providing an excellent support experience is another great way to build a great connection, win customer loyalty, and have positive word-of-mouth marketing without extra spending. It also helps to reduce churn. The best way to get there without investing heavily in human resources is by using modern AI software to automate the support redundancies involved. This can free up your support teams' time to focus on issues requiring their intervention while benefiting the customer with speedy resolution.

Find out how to set up our own AI-operated support bot:

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4. Use efficient billing systems with strong dunning capabilities

One of the greatest lost opportunities for profit is losing customers at the last touchpoint - checkout, and payment. You can slide through this easily by ensuring robust billing systems that are designed to optimize conversions. Dependable software for this  usually comes with solid dunning capabilities to ensure you don't lose subscribers due to factors like expired payment methods during renewals.


Bottom Line: Sustainable profitability starts with controlling churn

As we move toward a maturing SVOD landscape, priorities in the media and industry are shifting. The focus is changing from growing scale to growing profitability and generating ROI. 

While raising pricing and reducing high costs is the most obvious way to multiply profits, it also has much to do with optimizing day-to-day operations. This includes personalizing marketing, enhancing customer support, using efficient billing systems, and reducing overall churn. Cost-effectively implementing the above this requires robust and specialized tools suited to the media and entertainment industries' specific needs while limiting churn.

Cleeng offers proven out-of-the-box solutions designed to amplify streaming ROI. While the churn prevention engine - ChurnIQ can predict churn with up to 92% accuracy and help you reverse it before it occurs, Hi5 offers AI-based customer support, and Merchant enables robust subscriber billing and checkout optimization.


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